Commentary, “Global Minotaur” publication

Commentary in the publication session of the Finnish translation of “the Global Minotaur” by Yanis Varoufakis. Maailmantalouden minotauros

*****

I was requested to comment briefly on the book. As I have just finished reading it, what I have to share are mostly first impressions.

First, I think it is a remarkable achievement to discuss world economic history in just over 200 pages. In a text like this, of course some things will be presented in a simplified manner, and numerous details will be omitted. Yet I feel that I generally should rather admire how much is included rather than criticize what is omitted.

Second, my impression about the book is that it strikes me how it can combine clarity and an apparently incomprehensible argument. The book is about an economic mechanism hoovering suprluses to fill the US double deficit, called “the global Minotaur”.I am not really sure what the Minotaur is, is it a theoretical hypothesis or a metaphor or can it be both. It is also unclear what is the agency involved: to what extent the Minotaur “does” things, and to what extent are individuals in the knowledge of actually serving the “Minotaur”. Yet strangely, the argument is convincing nevertheless, and I guess that this is what matters.

*****

To move on, three points on why the book is important generally, and in Finnish translation particularily.

First, we need to understand the global system in order to understand the economy. What is really striking in global politics is that despite all the talk about global governance, global interdependecy, globalisation etc, and the existence a myriad of UN agencies etc, there is no international mechanism for balancing trade surpluses and deficits. What is really striking in economics is, that the study of economics is dominated by microeconomics, when we especially urgently would need to understand the bigger picture.

Any well-written book which contributes to understanding global political economy is highly useful in these times.

Second, I think this book is important for helping us understand the prospects of European integration. We are used to thinking about integration in terms of formal politics, rather than terms of political economy, and for that reason there is a deep-felt suspicion, that more political integration with proper economic mechanisms would mean surrending political power to Germany. Yet there are good reasons to argue, that Germany really has most power in the current-kind of partial and selective crisis-prone integration, rather than a deep rule-based integration. The book, I believe, makes a really good case regarding this point. It’s simply a matter of economic power being different to formal political power.

But of course, these things can be read in numerous textbooks in English. Yet I have a reason to think that particularily the Finnish translation is important and needed. This is because this country suffers greatly from what I call a surplus-country mental landscape. This is not an economic condition, its a collective mindset. It is the main reason why we are prepared to create a home-grown depression by cutting wages and public services in a time of an economic downturn.

We are accustomed to believe, that there is a mystic entity called the world market, which absorbs whatever we produce, and this is because what we produce is so great. We never have really accustomed to think about the demand-side. Let alone that we should have a responsibility to boost demand.

There is a general idea, that what economy needs is better attitude towards work (supply of labour force) and less public debt. Because of these strong popular ideas, we are about to destroy our economy: less wages and cuts to public spending in an economic recession is about the most stupid thing you can do, but the popular economic common sense calls for these measures, fiercely. In this atmosphere, politician are blamed for carrying out the self-destruction too slowly.

The curious side of the mental landscape of a surplus country is, that when the terms of trade turns negative, the whole country is in confusion. Why does the world market not like us anymore? Is there something wrong with the fine gadgets we produce? Of course the reflexes also function: this must be because our labour force is too expensive… But even the industrialists talk continuously in a self-contradicting manner. The only thing the elite of this country can do, is to run a surplus economy.

Especially this kind of moment of confusion is a great moment for getting well-argued ideas showing the necessary balance of surpluses and deficits, globally.

****

Of course, the book is a great historical outlook, but leaves future open. We get to the point of the collapse of the global order as we knew it, but don’t get further. What is really missing in the book, is its sequel.

So the question is, what can a world economy look like, now that the mechanism hoovering the surpluses, is dead? I am not even trying to answer the question, but let me make a few brief remarks on what kinds of issues the sequel could start with.

First, we are moving to an era beyond hegemons. Clichéd as this might be, the question is not, what kind of mechanism will take the place of the “Minotaur”, but rather, what kinds of mechanisms (plural), will do this. Most likely, there will be less “global economy”, but several systems overlapping only partially.

One such mechanism we can already discern clearly: that is China in Africa. China is slowly turning away from its role as a surplus nation relying on American demand, to pursuing a strategy not dissimilar to that of the US after WW II, “the Global Plan”. It very actively invests its surplus to create demand for its products. Chinese investment in Africa is truly massive, and it is no coincidence that China is turning to this strategy after its symbiosis with America is over (“the Minotaur is dead”).

So there are emerging mechanisms for surplus recycling, its just that the European are not doing it. The fact that the euro is failing does not mean that the world is failing.

Second, while the is acute need for co-ordination of surpluses and the world would be an immensely better place with something like the Keynes plan, there are of course different kinds of co-ordinations. Co-ordination based on hegemonic power works, as noted in the book, but its far from just. Co-ordination by global institutions sound good, but this can be similarily just or unjust or anything in between.

An noted in passing in the book, really the only power with a potential interest and any capacity to push for a co-ordinated system today would be the IMF. I really don’t know if we want co-ordination by the IMF and on IMF’s terms. It is possible, that arbitary and accidental co-ordinations are better.

Third, a component of any strategy of the future of world economy, something really needs to be done about financialisation. The book makes it clear, that what the world economy needs is a “surplus recycling mechanism”; yet at the same time, it points to the power of banks as a problem. So a “recycling mechanism” is not enough, after all. The “Minotaur” is really a story of financialisation, not only a story of geopolitical power. Wall Street manages to hoover the surpluses of other countries for decades, but gets loose at the same time, collapsing after its self-generated risk structures go out of control.

But then, “Wall Street” means two things. It means US finance, and it means financialisation generally. So the question can be framed, to what extent “Wall street” means Wall street? Did not the deceptive reshuffling of risks depend on the rise of offshore finance? And then, what would be the relation of the “Minotaur” to offshore finance, part of the strategy or unintended consequence, as it could really be interpreted either way? Would tax havens be the heir, the prodigal son, or a parasite of the “Minotaur”? We would have to answer this question to be able to think beyond the “Minotaur”.

Fourth, when it comes to balancing surpluses and deficits, there is always the alternative to trade less. If you read Keynes, what he had in mind was not only about co-ordination and governance. He seemed to lean on a more philosophical idea what he called “balanced economy”, balance having also the connotation of authenticity. It seems that Keynes was not that keen on boosting international trade. There had to be international trade, for sure, but more trade was no goal as such.

Trading less is of course a very unpopular strategy, and several people are very willing to call it an economic suicide. But maybe it should be considered, thinking of the existing economic problems, the pressing need to reduce the power of the largest corporations, and the looming end of fossil energy. More domestic consumption implies less problems related to trade balances.

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